- Strategic and economic importance of the ongoing project for Government of Telangana (GoT)
TSWRIDCL is a special purpose vehicle (SPV) created by the Government of Telangana (GoT) with an objective to develop the drought-prone upland and backward areas of Telangana State by providing water for irrigation, drinking and industrial requirements. The project is expected to provide 200 TMC of water annually to serve Ac. 11.18 Lakh new Ayacuts and stabilize around Ac. 10.47 Lakh other than supplying 10 TMC of water for industrial use. The project further enhances the Irrigation potential in the Telangana and upkeep of the existing projects to enhance the agriculture productivity per unit of water with increased water use efficiency. All the available water resources for the benefit of Agricultural sector, Industrial Sector and also providing drinking water for overall development of Telangana State. The project additionally supports the ‘Mission Kakatiya’ and ‘Mission Bhagiratha’ schemes designed to provide drinking water to many villages while improving the capacities for farmers to sow two crops. TSWRIDCL divided the entire project into three parts based on its coverage area and connectivity. The Telangana Government has awarded the project for execution to reputed companies like Megha Engineering & Infrastructures Limited (MEIL), BVSR Constructions Private Limited, Navayuga Engineering Company Limited (NECL) amongst others. The project is being undertaken by GoT and therefore likely to pose implementation challenges like land acquisition, timely execution, any cost overruns. However, these risks are mitigated by strong government support. Acuité rating is also based on expectations of strong explicit government support for the project through an unconditional and irrevocable state government guarantee.
- Presence of Government Guarantee
The GoT has provided an unconditional, irreversible and irrevocable guarantee for both principal and interest payments of the term loans until repayment. TSWRIDCL, being its 100 percent owned company, shall also guarantee the funding of cost escalation cost-overrun, (if any).
- Healthy socio-economic profile of Telangana
GoT is maintaining healthy fiscal discipline, superior tax collection, and healthy liquidity management. . The FY24 budget proposals of government of Telangana revolve around a nominal GSDP growth of 6.7% as against the FY23 nominal GSDP growth of 13.04% percent. The Telangana’s economy has seen robust growth in recent years, in 2022-23, Telangana’s GSDP (at constant prices) is estimated to grow at 7.4%, which is less than growth of 10.9% in 2021-22. In 2022-23, national GDP is estimated to grow by 7%. By consistently outperforming the country, the state’s share in national GDP increased from 4.1% in 2014-15 to 4.8% in 2022-23, despite its share in the national population remaining constant at 2.9% throughout this period. In 2022-23, the agriculture sector is estimated to grow at 3.4%, higher than in 2021- 22 (in real terms). However, both services and manufacturing sectors are estimated to grow at a lower rate in 2022-23 as compared to 2021-22. In 2022-23, agriculture, manufacturing, and services sectors are estimated to contribute 21%, 17%, and 63% of the economy, respectively (at current prices) the manufacturing and services sectors of Telangana are estimated to grow at 12.2% and 11.6%, respectively.
In 2023-24, the state is estimated to observe a revenue surplus of Rs 4,882 Cr, which is 0.3% of GSDP. In comparison, in 2022-23, the state is expected to observe a revenue surplus of 0.2% of GSDP as per the revised estimates. A revenue surplus implies that the government does not need to borrow to finance those expenses which do not increase its assets or reduces its liabilities. Total expenditure (excluding debt repayment) in 2023-24 is targeted at Rs 2,77,690 crore. This is an increase of 23% over the revised estimate of 2022-23. This expenditure is proposed to be met through receipts (excluding borrowings) of Rs 2,39,455 crore and net borrowings of Rs 46,318 crore. Fiscal deficit for 2023-24 is estimated to be 2.7% of GSDP (Rs 38,235 crore). In 2022-23, the state has estimated a fiscal deficit of 3.2% of GSDP, lower than the limit of 4% of GSDP permitted by the central government for that year (of which 0.5% of GSDP becomes available upon undertaking power sector reforms). In 2023-24, capital outlay is estimated to increase by 39% over 2022-23 revised estimates. Sectors with high increases include (i) irrigation and flood control (28%), (ii) education (85%), and transport (15%).
The deficit and debt coverage indicators are healthy. The state has consistently maintained a revenue surplus. Further, it is self-reliant in revenue sources, with own tax revenue plus own non-tax revenue at around 65 per cent of revenue receipts. The per capita income of Telangana in 2022-23 (at current prices) is estimated at Rs 3.17 lakh, an increase of 15.1% over the per capita income of 2021-22 Rs 2.75 lakh. State's total own tax revenue is estimated to be Rs 1,31,029 crore in 2023- 24, an increase of 18% over the revised estimate of 2022-23. Own tax revenue as a percentage of GSDP is estimated at 9.3% in 2023-24. For 2022-23, the state had estimated this ratio at 8.3%. The state’s performance in terms of social indicators such as infant/maternal mortality rate, average life expectancy at birth and per-capita income is better than the national averages
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- Exposure to project implementation risk, including t ime and cost overruns
The Project Cost of the 3 projects being undertaken by TSWRIDCL is Rs. 47,222.88 Cr which was proposed to be funded by equity/grant of Rs. 26,708.23 Cr (56.56 %) from GoT and debt of Rs. 20,514.67 Cr (43.44%) from commercial banks and Financial Institutions (FIs). As on June 30, 2023, the total capital expenditure incurred by the Company towards the Project was Rs. 36607.21 Cr (~78 percent) funded b Rs. 14,219.69. Cr of debt from commercial banks and FIs and Rs. 22,387.52 Cr of equity/grant from GoT. The physical progress project is around 78 percent completed as on June 2023. Flood Flow Canal project cost is estimated at Rs. 12624.17 Cr which is to be funded by an equity/grant of Rs. 7459.4 Cr from GoT and debt of Rs. 5164.80 Cr from commercial banks and FIs. As on June 30, 2023, the total capital expenditure incurred by the Company towards the Project was Rs. 11,275.51 Cr (~89 percent) funded by Rs. 7,459.4 Cr of equity/grant from GoT and Rs. 3707.87 Cr of debt from commercial banks and FIs. Physical progress is at ~89 percent as on June 30, 2023. All major elements of the project have been completed and the project commenced commercial operations with critical components in March, 2022. Devadula-Tupakulagudem project cost is estimated at Rs. 18,245.90 Cr which is proposed to be funded by an equity/grant of Rs. 10,858.21 Cr from GoT and debt of Rs. 7387.72 Cr from commercial banks and FIs. As on June 30, 2023, the total capital expenditure incurred by the Company towards the Project was Rs. 16.704.48 Cr (~92 percent) funded by Rs. 11,530.80 Cr (Which includes the interest during construction for the delay in DCCO of Rs. 583.43Cr) of equity/grant from GoT and Rs. 5173.68 Cr of debt from commercial banks and FIs. Physical progress is at ~92 percent as on June 30, 2023. All major elements of the project have been completed and DCCO of the Project commenced on March, 2022. Sita Rama Lift Irrigation project cost is estimated at Rs. 16,352.78 Cr which is proposed to be funded by an equity/grant of Rs. 8390.30 Cr from GoT and debt of Rs. 7962.15 Cr from commercial banks and FIs. As on June 30, 2023, the total capital expenditure incurred by the Company towards the Project was Rs. 8627.22 Cr (~53 percent) funded by Rs. 3289.08 Cr (Which includes the interest during construction for the delay in DCCO of Rs. 583.43Cr) of equity/grant from GoT and Rs. 5338.20 Cr of debt from commercial banks and FIs. Physical progress is at ~53 percent as on June 30, 2023. All major elements of the project have been completed and DCCO of the Project commenced on March, 2023. Acuité believes that ability of the company to execute the project as per revised timelines in entirety will be a key rating sensitivity.
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